Inverse Equity ETFs To Bet On Historic Selloff

The bull run in U.S. stocks has finally been shaken after almost nine years. The second-largest and most-powerful rally was caught off guard at the start of this month.

This is especially true as the selloff in major bourses deepened with the start of the new week as they suffered their worst drop in more than six years and eroded all the gains made in 2018.

In fact, the bloodbath led to the biggest one-day decline for the Dow Jones Industrial Average in its 122-year history when the index was down nearly 1,500 at one stage. However, the blue-chip index recovered slightly at the close, slumping 1,175 points or 4.6% while the S&P 500 plunged 4.1%. With this big slide, both indexes turned negative for the year.

The rout started on Friday, leading Wall Street to its worst weekly performance in two years, pushing the Dow Jones and the S&P 500 down nearly 4%. Rising U.S. bond yields after the better-than-expected wage growth triggered the selloff. Average hourly wages rose 0.3%, pushing the year-over-year increase to 2.9% — the fastest pace in more than eight years. The strong number has sparked fears of inflation and the resultant speculation of faster-than-expected rate hikes.

The Fed intends to increase interest rates three times this year but the rise in inflation could lead to four hikes or even more this year. Higher rates would make the stocks less attractive compared to other investments, particularly bonds, which offers higher yields. In anticipation of aggressive rate hikes, the 10-year Treasury yield jumped to as much as 2.88%, marking a four-year high.

Further, political turmoil including a government-funding deadline on Feb 8 and upcoming debt limit issue, new leadership at the Fed with Jerome H. Powell as well as threats of overvaluation have added to the woes.

The stock rout does not end here as the Dow futures are signaling further decline in today’s trading session. Dow futures slumped more than 350 points, or 1.5% at the time of writing, in pre-market trading today, suggesting that the turmoil will deepen. The vicious selloff on Wall Street has left the stock market on the verge of a “correction,” which means a 10% drop from the recent highs. The Dow Jones is currently down 8.5% from its previous closing high, while the S&P 500 is off 7.8%. The Nasdaq has tumbled 7.2% from its all-time high.